One of the most popular types of mortgages for borrowers in Miami and throughout Florida is the conventional loan. Sometimes, people refer to conventional loans and conforming loans as if they are the exact same thing. But are they?
Actually, there is a difference between a conventional loan and a conforming loan. Technically, a conforming loan is a type of conventional loan. But non-conforming loans are also a type of conventional loan.
Indeed, there is so much confusion over this topic that even authoritative sources often will not explicitly state that this is the case. But it is hard to get more authoritative than the Consumer Financial Protection Bureau. CFPB makes it very clear that conforming and non-conforming loans are both categories of conventional loans.
Difference Between Conforming and Conventional Loans
With that being said, let’s lay out the definitions:
- Conventional Loans. Conventional loans are loans that are not backed by a government agency. That means an FHA loan is not a conventional loan, because it is backed by the Federal Housing Administration. A VA loan is not a conventional loan, since it is backed by the Department of Veterans Affairs. A USDA loan is not a conventional loan, as it is backed by the US Department of Agriculture.
- Conforming Loans. Conforming loans conform to the Fannie Mae and Freddie Mac loan limits. Fannie Mae and Freddie Mac are both government-sponsored entities (GSEs). They will not purchase loans in excess of their loan limits, which are set by county and which may change each year. So, if a loan is not backed by a government agency and does not exceed the Fannie Mae and Freddie Mac loan limits, it is both a conventional and conforming loan. Because so many people use these terms as if they are one and the same, when a borrower asks us about a conventional home loan, they normally are asking us about a conforming loan.
- Non-Conforming Loans. Now let’s talk about loans that do not conform to the Fannie Mae and Freddie Mac loan limits. These are called non-conforming loans or “jumbo” loans. The GSEs cannot purchase these loans. Remember, jumbo loans are not insured by a government agency like the VA, USDA, or FHA, however. For that reason, they are conventional loans. Still, most consumers do not ask about conventional loans while meaning jumbo loans—typically, if they want a non-conforming loan, they simply say so.
Have More Questions About Conventional, Conforming, and Non-Conforming Loans?
We know that the different types of loans can be confusing and that you may have many questions about all of these types of mortgages.
Lending Bankers Mortgage can explain how these types of home loans work in detail and can help you identify which is suitable for your needs.
To get started now, please call LBM at (786) 220-1100 to schedule your consultation. Let’s get you into your dream home using the type of loan that is right for you.